Federal Committee Sacramento Convention Center Room 308/309/310 Sacramento, CA Thursday, May 5, 2011 3 p.m. – 5 p.m.
Presiding: Barbara J. Palmer, Chair Mark Peterson, Vice-Chair Clay Sigg, Vice-Chair Mike Riley, Executive Liaison Jeannette Way, NAR Committee Representative
Staff: Matt Roberts, Federal Government Affairs Manager
I. Welcome and Opening Comments– Barbara J. Palmer
II. Reports by Committees and Task Forces
A. Housing Committee – Allen Okamoto, Chair
B. Taxation & Government Finance Committee – Patricia Bouie-Hinds, Chair
C. Land Use & Environmental Committee – Greg Haas, Chair
D. Transaction & Regulatory Committee – Steve Rosco, Chair 1. GSE Refinance Legislation (IBP)
E. Distressed Properties Task Force – Colleen Badagliacco, Chair 1. Mark-to-Market (IBP) 2. Mandatory Response to Short Sale Request (IBP) 3. Subordinate Lien Short Sale Acceptance (IBP) 4. Safe Harbor (IBP) 5. Personal Recourse in Short Sales (IBP)
III. Survey of the Legislative Climate
A. Member Mobilization Report – DeAnn Kerr
IV. Regulatory Process
V. C.A.R. Federal Priorities Recap from Winter Meetings
A. Tax Issues House Budget Committee Chairman Paul Ryan (R-WI) has introduced the outlines of a major budget proposal that is intended to reduce federal spending by over $6 Trillion over the next 10 years. The primary focus of the proposal is an overhaul of the two largest entitlements, Medicare and Medicaid. Notably, though, the proposal also directs the Ways and Means Committee to overhaul the tax code with a goal of reducing the top corporate and individuals tax rates from their current 35% to no more than 25%. To achieve such a dramatic rate reduction, numerous tax benefits will need to be revised or repealed.
The Obama Administration has released its Fiscal Year 2012 budget proposals. The document includes the same MID limitation that was part of the Administration's FY 2010 and FY 2011 budgets. That proposal would limit the value of the MID for upper income taxpayers. For 2011, the value of the deduction for those in the 30% and 35% brackets would be limited to 28%. After 2012, the value of the deduction would be limited to the 28% bracket for those in the 33% and 39.6% brackets.
B. GSE/Loan Limits Fannie Mae and Freddie Mac (Government Sponsored Enterprises or GSE) have now been under the conservatorship of the Federal Housing Finance Agency (FHFA) since September 2008. Reforming these mortgage giants, which guarantee or own roughly 50 percent of all outstanding mortgages, is a top priority for both sides of the isle in the new Congress.
While this is a priority for Congress, it is unknown what shape GSE reform will take. The White House released their GSE reform proposal earlier this year that proposed a quick unwinding of the mortgage giants. There have been many different proposed ideas, but perhaps the toughest question facing the Administration and Congress is what, if any, role should the government play in the housing finance market? Multiple bills have been introduced in the House which has already begun hearings and committee markups of different proposals (House Subcommittee Hearing Link). However, it will likely take the Senate some time to gather the 60 votes needed to pass anything.
REALTORS® have successfully extended the current FHA and GSE loan limits on an annual basis since 2008. Congress again extended those loan limits during the last session of Congress. However, unlike prior years where the loan limits were extended for the calendar year, this time Congress only extended the loan limits for the Fiscal Year. This means the current loan limits are set to expire at the end of September 2011.
Due to declining median home prices and an expanding congressional membership who support an expedient shrinking of the government’s involvement in the nation’s housing market, it may be difficult to extend the loan limits for another year. This is in spite of the damage such a reduction will cause to California’s housing market.
C. Short Sales Short sales continue to be a large share of the California housing market. While efforts have been made to make the short sale transaction easier, many of our members continue to have difficulty with this type of transaction. The biggest hurdles to successful short sale transactions continue to be different requirements from lender to lender, length of time for the short sale process, lack of transparency and poor escalation mechanisms for troubled transactions.
D. FHA Over the last three years, the Federal Housing Administration (FHA) has seen its market share across the country skyrocket. Currently FHA accounts for over 30 percent of the mortgage market. Many in Congress view this as government intrusion into the mortgage market. Much like the GSE debate on what the government’s role in housing finance should be, there is expected to be strong support to pass legislation that will roll back FHA’s market share. This may be done by reducing its loan limits, increasing the FHA downpayment minimum or other possibilities.
E. Insurance On September 30, 2010, the President signed a one year extension of the National Flood Insurance Program (NFIP). For some time now Congress has been approving a series of short-term extensions of the NFIP while discussions continue over comprehensive reforms to improve the program's actuarial and financial foundations. Without the NFIP, property owners in federally designated areas across nearly 20,000 communities nationwide could not obtain a mortgage or flood insurance to protect their properties. Following a series of disasters the program has become insolvent and has required federal funding to continue to issue policies. Reform of this program will have to eventually be done to ensure the program can function on its own.
F. Commercial Mortgage Liquidity Capitol for commercial lending continues to be in short supply. While the federal government has stepped in to supply liquidity to over 90 percent of the home mortgage market, there was no equivalent for the commercial market which prohibited borrowers from refinancing when their balloon payments came due.
Earlier this year, positive signs were seen as investors quickly snapped up $4 billion in commercial mortgage bonds. As the government continues to hold Treasury rates at historic lows investors are beginning to see opportunity in putting their money, though limited, back into other investments with greater returns, such as commercial mortgages.
G. Private Transfer Fees The Federal Housing Finance Agency (FHFA) has issued a proposed rule intended to limit the usage of private transfer fees (PTF). This is a follow up to their proposed guideline stating “the Enterprises (Fannie Mae and Freddie Mac) should not purchase or invest in mortgages encumbered by private transfer fee covenants or securities backed by private transfer fee revenue, as such investments would be unsafe and unsound practices and contrary to the public missions of the Enterprises and the Banks.” However, unlike the proposed guidelines, the proposed rule creates many exceptions that would make the final rule ineffective in California.
The proposal creates exceptions for homeowners associations (HOA) and non-profit entities who utilize the money to provide a “direct benefit” to the encumbered property. The FHFA has defined “direct benefit” as:
Direct benefit means that the proceeds of a private transfer fee are used exclusively to support maintenance and improvements to encumbered properties as well as cultural, educational, charitable, recreational, environmental, conservation or other similar activities that benefit exclusively the real property encumbered by the private transfer fee covenants. Such benefit must flow to the encumbered property or the community comprising the encumbered properties and their common areas or to adjacent or contiguous property. A private transfer fee covenant will be deemed to provide a direct benefit when members of the general public may use the facilities funded by the transfer fees in the burdened community and adjacent or contiguous property only upon payment of a fee, except that de minimis usage may be provided free of charge for use by a charitable or other not-for-profit group.
C.A.R. is strongly opposed to the proposed rule and has met personally with the FHFA and submitted a comment letter expressing our concern, opposition and recommended changes to ensure the implementation of a prohibition on PTFs is done in an manner that benefits California’s housing market. (Comment Letter)
H. Energy & Climate Change As Congress looks at the issues of energy conservation and climate change, one of the items that will be discussed is the carbon footprint of homes and commercial buildings. Last session the House passed a number of bills that would impact real estate including incentives for property owners to make energy efficient upgrades to their properties. There were also attempts to create labels for existing properties; efforts that were successfully beaten back by REALTORS®.